-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RVCA0Da/dQzHLHyLgP28jf5K0tm9FtmszjQK8b2Uz/3lZU2pzk++TUSWlZgDogon gZW3TUiqoWJpxHSI1NiQXA== 0000947871-03-000755.txt : 20030327 0000947871-03-000755.hdr.sgml : 20030327 20030327123603 ACCESSION NUMBER: 0000947871-03-000755 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030327 FILED AS OF DATE: 20030327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMBRAER BRAZILIAN AVIATION CO CENTRAL INDEX KEY: 0001117603 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT [3721] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15102 FILM NUMBER: 03620144 BUSINESS ADDRESS: STREET 1: AVENIDA BRIGADERO FARIA LIMA 2170 STREET 2: 12227-901 SAO JOSE DOS CAMPOS SAO PAULO CITY: FEDERATIVE REPUBLIC STATE: D5 ZIP: 00000 BUSINESS PHONE: 0115512345 MAIL ADDRESS: STREET 1: BRIGADERIO FARIA LIMA 2170 PUTIM PC 294 CITY: SAO JOSE DOS CAMPOS STATE: D5 ZIP: 999999999 6-K 1 f6k_032703.txt REPORT OF FOREIGN PRIVATE ISSUER FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 under the Securities Exchange Act of 1934 For the month of March, 2003 Commission File Number: 1-15102 Embraer - Brazilian Aviation Company (Translation of registrant's name into English) EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. Av. Brigadeiro Faria Lima, 2170 12227-901 Sao Jose dos Campos, Sao Paulo, Brazil (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: Form 20-F X Form 40-F ----- ----- Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): _____ Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): _____ Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: Yes No X ----- ----- If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-_____ This report on Form 6-K shall be incorporated by reference in the Registration Statement on Form F-3 (Registration No. 333-14018) as amended, filed by Embraer - - Empresa Brasileira de Aeronautica S.A. under the Securities Act of 1933, to the extent not superseded by documents or reports subsequently filed by Embraer - - Empresa Brasileira de Aeronautica S.A. under the Securities Act of 1933 or the Securities Exchange Act of 1934. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. Dated: March 27, 2003 By: /s/ CARLOS ROCHA VILLELA -------------------------------- Name: Carlos Rocha Villela Title: General Counsel 2 EXHIBIT INDEX ------------- 1. One copy of the Company's Press Release dated March 25, 2003. 2. One copy of the Company's Fourth Quarter 2002 and Fiscal Year 2002 Earnings Release dated March 26, 2003. 3 EX-99.1 3 ex99-1_032703.txt PRESS RELEASE [GRAPHIC OMITTED] EMBRAER TO REVISE DELIVERIES TO SWISS First deliveries of the EMBRAER 170 rescheduled to 2004, total aircraft ordered reduced Sao Jose dos Campos, March 25, 2003 - Embraer announced today that an agreement has been reached with Swiss International Air Lines, regarding its ongoing short-haul fleet renewal program. In light of the generally unfavorable economic situation, and the carrier's current condition in particular, SWISS is reducing its firm orders for EMBRAER 170 and EMBRAER 195 aircraft to 30 aircraft, 15 of each model, from an original total of 60. The EMBRAER 170 shall enter service at SWISS in August 2004, with four aircraft delivered, followed by eight aircraft in 2005. Deliveries of the EMBRAER 195 will start in 2006. The number of options for both models is also being reduced to 20, from 100 aircraft. Part of the advancement payments previously paid will be returned to SWISS. These refunds will not involve any cash payment by Embraer, since the advance payments were being maintained in an escrow account and therefore had not been reflected on the company's balance sheet. As a result of the new agreement with SWISS, Embraer's firm backlog as of December 31, 2002 would be US $ 8.3 billion, while its total backlog, including options, would amount US$ 19.5 billion. The EMBRAER 170/190 development program is otherwise proceeding as planned, with the EMBRAER 170 expected to be certified in the second quarter of 2003, in order to allow deliveries to Alitalia and GECAS. In light with this agreement with SWISS Embraer is revising its total deliveries forecasted for the years 2003 and 2004, which change respectively to 132 and 136 aircraft. Embraer will continue to review the risks and perspectives for the aviation market and to pursue new and identified sales opportunities in the United States, Europe, Asia and Latin America. Note to editors - --------------- Embraer (Empresa Brasileira de Aeronautica S.A. - NYSE: ERJ; Bovespa: EMBR3 and EMBR4) is one of the world's leading aerospace companies. With headquarters in Sao Jose dos Campos, state of Sao Paulo, and offices and customer service bases in Australia, China, France, Singapore and the United States, the Company as of December 31, 2002 has a total workforce of 12,227 people. Embraer was Brazil's largest exporter from 1999 to 2001, and second largest in 2002. As of December 31, 2002, Embraer's firm order backlog totaled US$ 9.0 billion and the total backlog, including options, equaled US$ 22.2 billion. Embraer has 33 years of experience in designing, developing, manufacturing, selling and providing after sales support to aircraft aimed for the global airline, corporate and (more recently) defense markets. - -------------------------------------------------------------------------------- This document may contain projections, statements and estimates regarding circumstances or events yet to take place. Those projections and estimates are based largely on current expectations, forecasts on future events and financial tendencies that affect the Company's businesses. Those estimates are subject to risks, uncertainties and suppositions that include, among other: general economic, politic and trade conditions in Brazil and in those markets where the Company does business; expectations on industry trends; the Company's investment plans; its capacity to develop and deliver products on the dates previously agreed upon, and existing and future governmental regulations. The words "believe", "may", "is able", "will be able", "intend", "continue", "anticipate", "expect" and other similar terms are supposed to identify potentialities. The Company does not feel compelled to publish updates nor to revise any estimates due to new information, future events or any other facts. In view of the inherent risks and uncertainties, such estimates, events and circumstances may not take place. The actual results can therefore differ substantially from those previously published as Company expectations. - --------------------------------------------------------------------------------
Press Headquarters North America Europe, Middle East offices and Africa Rosana Dias: Doug Oliver: rosana.dias@embraer.com.br doliver@embraer.com Stephane Guilbaud: Cell: +55 12 9724-4929 Phone: +1 954 359 3414 sguilbaud@embraer.fr Phone: +55 12 3927 1311 Cell: +1 954 232 9560 Phone: + 33 (0) 1 49 38 44 55 Fax: + 55 12 3927 2411 Fax: +1 954 359 4755 Cell. +33 (0) 6 75 22 85 19 Fax: + 33 (0) 1 49 38 44 56 Andrea Bottcher: abottcher@embraer.com Catherine Fracchia Phone: +1 954 359 3432 cfracchia@embraer.fr Cell: +1 954 439 1830 Phone: +33 (0) 1 49 38 45 30
EX-99.2 4 ex99-2_032703.txt EARNINGS RELEASE [GRAPHIC OMITTED] US GAAP Common Shares - ------------- Bovespa: EMBR3 Preferred Shares - ---------------- Bovespa: EMBR4 NYSE: ERJ 1 ADS = 4 Pref. shares www.embraer.com EMBRAER INVESTOR RELATIONS Anna Cecilia Bettencourt Gustavo Poppe Milene Petrelluzzi Paulo Ferreira Phone: 55 12 3927 1216 mercapit@embraer.com.br EMBRAER [GRAPHIC OMITTED] EMPRESA BRASILEIRA DE AERONAUTICA S/A REPORTS FOURTH QUARTER AND FULL YEAR OF 2002 EARNINGS RELEASE The company's operational and financial information is presented, except where otherwise indicated, on a consolidated basis in United States dollars (US$) in accordance with US GAAP. The financial data presented in this document for the year ended December 31, 2001 are derived from our financial statements audited by Deloitte Touche Tohmatsu and the financial information for the 4th quarter 2001 and 2002 as well as for the year ended December 2002 are unaudited. In order to better understand the Company's operating performance, we are also presenting at the end of this release certain information in accordance with the Brazilian Corporate Law ("Brazilian GAAP"). Sao Jose dos Campos, March 26, 2003 - Embraer (BOVESPA: EMBR3, EMBR4) (NYSE: ERJ), one of the leading commercial aircraft manufacturers in the world, registered in FY2002 net sales of US$2,525.8 million and net income of US$222.6 million, equivalent to diluted earnings per ADS of US$1.3095. The order backlog as of December 31, 2002 totaled US$22.2 billion, US$9.0 billion in firm orders and US$13.2 billion in options, not considering the effect of SWISS contract changes announced March 25, 2003. (See recent developments). 2002 In Perspective The terrorist attacks in the United States on September 11, 2001 have resulted in a high level of uncertainty for the worldwide airline industry. Many airlines faced immediate declines in airline travel, credit downgrades and liquidity concerns. In addition, the global economy has experienced significant volatility and weakness. In response to these events, many airlines, reduced their flight schedules for the long-term, announced significant lay-offs, rescheduled aircraft deliveries and, in some cases, have filed for bankruptcy protection. We believe one of our major strengths is the flexibility of our production processes and our operating structure, including our risk-sharing partnerships, which are designed to minimize fixed costs, allowing us to increase or decrease our production in response to market demand without significantly impacting our margins. We believe this flexibility has enabled us to strengthen our relationships with our customers and positions us well for the future. During 2002, 131 aircraft were delivered, 82 ERJ 145, 36 ERJ 140 and 3 ERJ 135 jets in the commercial aviation segment, 7 Legacy Executive jets and 1 Legacy Shuttle in the corporate aviation segment, as well as one 1 EMB 135 and 1 EMB 145 for the defence market and government support operations. Despite the unfavourable industry and macro-economic conditions, Embraer kept its strategy on course for the future, its corporate trajectory based and founded on confidence in its core skills and capabilities, on partnerships with clients and suppliers and on expanding the company's global presence. Over the past few years, the company has maintained a high level of investment in technology, developing new products, improving industrial production efficiency and productivity, as well as motivating its highly-qualified employees. 1 First flight of the As a result of new product development, 19 February EMBRAER 170 on 2002 saw the maiden flight of the EMBRAER 170 February 19, 2002. prototype. From the initial design stage, the development and building of the EMBRAER 170 took only 28 months, with participation by hundreds of Embraer's engineers and technicians, together with 16 risk-sharing partners and 22 other main equipment and component suppliers. The design not only uses new concepts, such as a double bubble fuselage, which offers greater space and comfort for passengers, but also fly-by-wire technology, whose primary electric commands are generated by computer. In the defence segment, Embraer delivered to the Brazilian Air force (FAB) the first five aircraft that form part of the Amazon Surveillance System (SIVAM). Four EMB 145 SA aircraft are to be used in the Airborne Early Warning System and Control and 1 EMB 145 RS is to be used for Remote Monitoring. Embraer has continued to expand its global presence and has shown its determination to win new markets. On 2 December 2002 Embraer signed a joint venture agreement with the Chinese companies Harbin Aircraft Industry Group Co. and Hafei Aviation Industry Co. Ltd., both subsidiaries of the China Aviation Industry Corporation II - AVIC II. The joint venture, 51% owned by Embraer, was established to build a plant in the city of Harbin - in the Northeast of China -for the final assembly, sale and after-sales support of the ERJ 145 jet family in the Chinese market. This joint venture company has been named Harbin Embraer Aircraft Industry Company, Ltd. In addition, with the aim of establishing a maintenance and service base to cater to the growing fleet of regional aircraft in the North American market, Embraer acquired from Reliance Aerotech Inc. the operational assets of Celsius Aerotech Inc., located in Nashville - Tennessee, and began operating this Service Center in March. At the end of another fiscal year, the company managed to maintain relative economic and financial stability in its industry and provide an adequate return on investment to shareholders. Embraer reaffirms its central philosophy of keeping its goals strongly aligned to those of its customers, providing high quality customer satisfaction and creating shareholder value and value for its employees and the aviation market as a whole. Organizational To this end, in the beginning of 2003 the company restructuring to completed an organizational restructuring, which aims improve customer to make Embraer's presence in relation to the market satisfaction. and its clients more direct and more efficient, particularly in terms of its customers' cost/benefit analysis. Under this new structure, Commercial Aviation and Corporate Aviation were consolidated into Civil Aviation and Client Services activity has been incorporated into the main business areas - the newly formed Civil Aviation, and Defence Aviation. Furthermore, these business areas also incorporate the engineering support functions for the company's products. The fundamental objective of this new structure is to reinforce the chain of command with integrated action, seeking to increase the speed at which customer demands are met and consequently improving customer satisfaction levels at all stages. We believe the trend in the commercial aviation market will be the transition from larger to smaller aircraft equipped with modern technology, as routes are rationalized and operational efficiency is improved. Embraer's new jet family fits ideally with this trend, adding to its already very successful ERJ 145 family with its EMBRAER 170/190 family in the 70 to 108-seat category. 2 4th Quarter 2002 Highlights o Net sales for the 4Q02 were US$ 798.2 million, 37.5% higher than the sales of US$ 580.6 million in the 3Q02. o Net income in 4Q02 was US$ 77.4 million, equivalent to diluted earnings per ADS of US$ 0.4463. o A total of 41 jets were delivered in 4Q02: 36 jets to the Commercial Aviation market and 5 Legacy to the Corporate Aviation market. o On October 22, 2002, the 2,000 nautical-mile-range ERJ 145 XR was certified by FAA. The initial deliveries to ExpressJet Airlines started after that. o In December 2002, Embraer announced the joint-venture in China with AVIC II, China Aviation Industry Corp. II, for the production of ERJ145 family aircraft. Embraer owns 51% of the JV, named Harbin Embraer Aircraft Industry Company Ltd.. o On December 19, 2002, Embraer announced the delivery of two ERJ 145 to PB Air, the first Embraer regional jet operating regular commercial routes in southeast Asia. 3 The following is a comparative analysis of the selected financial data of Embraer's consolidated statement of income for the three months ending December 31, 2001 and 2002 (4Q01 and 4Q02) and for the Fiscal Years ending December 31, 2001 and 2002 (FY2001 and FY2002). Reclassification of Please note that effective January 01, 2002, the US$30.5 million Company changed the classification of certain items from Cost of Sales previously classified as Cost of Sales and Services. and Services to These expenses relate primarily to information SG&A expenses and technology, various kinds of support and training & US$14.1 million education. The Company believes that such expenses are from Other more appropriately classified as General & Operating Administrative expenses. All previously reported Expenses, net to amounts have been restated to reflect this R&D. reclassification. The effect was a reclassification of US$ 30.5 million from Cost of Sales and Services to SG&A in FY2001 and US$ 9.7 million for the three months ended on December 31, 2001. The effects of this reclassification did not impact net income. To provide a better visibility regarding the research and development related contributions that we receive from certain of our suppliers, we decided, effective as of January 01, 2002 to include certain amounts received as contribution from suppliers in R&D expenses, which had previously been classified as Other Operating Expenses, net. As a result, for FY2001 and the three months ended December 31, 2001, we reclassified US$14.1 million, of contributions received from suppliers, from Other Operating Expenses, net to R&D expenses. This reclassification caused R&D Expense to decrease from US$113.7 in FY2001 to US$99.6 million in FY 2002 and from US$34.2 million in the three months ended December 31, 2001 to US$20.1 million in the three months ended December 31, 2001.
Three months ended Year ended Income Statement December 31, December 31, -------------------------------------------------------------- 2001 2002 2001 2002 - ----------------------------------------------------------------------------------------------------------------- US$ US$ US$ US$ In US$ millions, except % and earnings per ADS Net Sales 617.2 798.2 2,927.0 2,525.8 Gross Profit 241.5 312.3 1,157.8 994.1 Gross Margin (%) 39.1 39.1 39.6 39.4 Operating Expenses (87.2) (113.8) (363.1) (341.1) Research and development (20.1) (45.8) (99.6) (158.6) Employee profit sharing (20.9) (10.2) (43.7) (25.2) Income from operations 113.4 142.4 651.4 469.6 Operating margin (%) 18.4 17.9 22.3 18.6 Depreciation and Amortization 14.6 14.9 46.4 55.6 Interest income (expenses), net (4.4) (4.0) 69.0 30.8 Financial transaction gain (loss), net 21.6 (6.1) (170.2) (86.0) Other non-operating income (expense) net (4.4) (0.5) (8.4) (1.4) Income before income taxes 126.2 131.9 541.8 413.0 Provision for income taxes (37.6) (53.4) (218.4) (188.5) Minority interest 0.9 (1.1) (0.4) (1.9) Cumulative effect of accounting change - - 5.4 - Net income 89.5 77.4 328.4 222.6 Net margin (%) 14.5 9.7 11.2 8.8 Earnings per ADS - basic (1) 0.5399 0.4487 2.1104 1.3192 Earnings per ADS - diluted (1) 0.5397 0.4463 2.0130 1.3095
- -------------------- (1) Note: Earnings per ADS already reflects the 14.21% stock dividend in preferred shares of March 2002. Deliveries, Net Sales and Gross Margin ERJ145 XR sales In 2002, 131 aircraft were delivered in comparison to and growth in 161 in 2001. Net sales in FY2002 totaled US$ 2,525.8 Corporate Aviation million, 13.7% lower than the US$ 2,927.0 million offsets downturn in recorded in 2001. The decrease in Embraer's net sales Commercial during the period is primarily a consequence of the Aviation. reduction in aircraft deliveries to the regional market since 4 September 2001. However, a better sales mix in the commercial aviation segment, with the delivery of 18 ERJ 145 XR - a 2,000 nm-range-version of the ERJ 145, the 99.6% growth in corporate aviation revenues, following the initial deliveries of the Executive and Shuttle versions of the Legacy and sustained Defence revenues, helped partially offset the downturn in commercial aviation. Net sales for 4Q02 totaled US$ 798.2 million, 29.3% higher than the 4Q01 net sales of US$ 617.2 million. During 4Q02, 36 jets were delivered to the regional market, of which 28 were ERJ 145, six ERJ 140 and two ERJ 135. In addition to the deliveries to the regional market, four Executive and one Shuttle Legacy aircraft were delivered to the corporate market. In 4Q01, 31 jets from the ERJ 135/140/145 family and three aircraft for governmental transportation were delivered. Jet Deliveries 3rd Quarter 4th Quarter Full Year Per Market 2001 2002 2001 2002 2001 2002 - -------------------------------------------------------------------------------- Commercial ERJ 135 7 - 2 2 27 3 ERJ 145 22 18 15 28 104 82 ERJ 140 8 10 14 6 22 36 Defence EMB 135 1 - - - 2 - Legacy - 1 - - - 1 EMB 145 - - 1 - 1 1 Corporate EMB 135 3 - 2 - 5 - Legacy / Shuttle - 1 - 5 - 8 Total 41 30 34 41 161 131 Corporate In 2002, net sales in Commercial Aviation were 83.6% of Aviation sales in total sales, as compared to 87.2% in 2001. This 2002 reached reduction is in line with our strategy of revenue US$144.9 million diversification and also reflects the reduction in sales in the commercial aviation segment. Corporate Aviation net sales grew by 99.6% in 2002, reaching US$144.9 million, as the initial deliveries of the Legacy followed the certification by CTA, JAA and FAA, and represented 5.7% of total sales, compared to 2.5% in 2001. The 2002 Defence net sales of US$127.3 million were 2.7% above the FY2001 level, growing from 4.2% to 5.0% of total sales. Net sales include revenues from customer services & other related business, which dropped by 19.4% in 2002, mainly due to the effect of the devaluation of the R$ in R$-based sales, and was reduced from 6.1% to 5.7% of total sales. In 4Q02 the commercial aviation sector represented 80.7%, defence aviation 5.0%, corporate aviation 11.0% and customer services & other related business 3.3% of total net sales.
Net Revenues Three months ended December 31 Year ended December 31, Per Segment 2001 2002 2001 2002 - --------------------------------------------------------------------------------------------------- US$ % US$ % US$ % US$ % In Millions - ---------------------------------------------------------------------------------------------------- 5 Commercial Aviation 512.5 83.0 644.3 80.7 2,552.5 87.2 2,110.4 83.6 Defence Aviation 31.9 5.2 40.0 5.0 124.0 4.2 127.3 5.0 Corporate Aviation 29.6 4.8 87.8 11.0 72.6 2.5 144.9 5.7 Customer Services and other 43.2 7.0 26.2 3.3 177.9 6.1 143.3 5.7 related businesses Total 617.2 100.0 798.3 100.0 2,927.0 100.0 2,525.9 100.0
In 2002, gross profit was US$ 994.1 million, 14.1% lower than the US$ 1,157.8 million in FY 2001, mainly due to the reduction in commercial aircraft deliveries. Despite the Gross margin in FY 2002 was relatively stable at 39.4%, decrease in compared to 39.6% in FY 2001, despite the decrease in deliveries, Gross aircraft deliveries. Margin was stable at 39.4%. Gross margin in 4Q02 was also relatively stable when compared to the margin during 4Q01. SG&A Expenses In 2002, SG&A expenses were down to US$320.7 million from US$332.8 million during 2001. This reduction reflects the effect of the R$-devaluation on R$-denominated expenses, offset by a US$15.0 million provision for financial guarantees, which began to be incurred in 3Q02, and by an increase of US$11.6 million in product guarantees. In 4Q02, SG&A Expenses reached US$98.5 million, compared to US$ 79.7 million in 4Q01. This increase also primarily reflects the US$ 11.2 million provision for financial guarantees and the increase of US$ 13.5 million in product guarantees. Other Operating Expense, net Other Operating Expense, decreased to US$20.4 million in 2002 from US$29.5 million in 2001. This decrease is mainly attributed to a non-recurring US$4.5 million expense related to restructuring costs after September 11 and US$2.7 million reduction in product modification. Please see R&D comments below. Research and Development (R&D) R&D expenses In FY2002, R&D expense was US$ 158.6 million an reached increase from US$99.6 million in FY2001. This increase US$158.6 was mainly related to the development of the EMBRAER million. 170/190 family and also to the certification of the Executive and Shuttle version of the Legacy and of the ERJ 145 XR. In 4Q02, R&D reached US$45.8 million as compared to US$ 20.1 million in 4Q01, as the development of the larger versions of the EMBRAER 170/190 family are advancing. The R&D expenses during 2003 and 2004 are estimated to be US$167.0 million in 2003 and US$187.0 million in 2004, with the following breakdown: US$ MM 2003 2004 -------------------------------- Total R&D 167 187 Commercial 126 72 Corporate 14 3 Others 27 112 To provide a better visibility, we reclassified US$14.1 million related to Contribution from Suppliers, from Other Operating Expenses, net to R&D expenses. Therefore the amount reported in FY2001 of US$113.7 million was restated to US$99.6 million. Employee Profit Sharing 6 Employee Profit Sharing is subject to meeting operational goals established at the beginning of the year and is based on dividends distributions during the year to shareholders. Employee profit sharing was reduced to US$ 25.2 million in FY2002 from US$43.7 million in FY2001, reflecting the lower net income and the devaluation of the Real. In 4Q02, this amounted to US$ 10.2 million compared to US$ 20.9 million registered in 4Q01. Income from Operations In FY2002, income from operations, including equity in income from affiliates and stock compensation expense and employee profit-sharing, was down to US$ 469.6 million from US$651.4 million in FY2001. Embraer achieved operating margins of 18.6% in FY2002, in comparison to 22.3% in FY2001. In 4Q02, income from operations reached US$142.4 million, with a margin of 17.9% in comparison to US$113.4 million and margin of 18.4% in 4Q01. Interest Income (Expense), net In FY2002, Interest Income (Expense), net was reduced to US$30.8 million from US$69.0 million in FY2001, as a result of the higher average balance of the net cash position during 2001 and of the effect of the R$ devaluation on R$-denominated interest income. In 4Q02, Embraer recorded net interest expense of US$ 4.0 million, due to the reduction in net cash balance and the appreciation of the R$ during 4Q02, at the same level as the net interest expense of US$4.4 million registered in 4Q01 (see "Financial Management"). Financial Transaction Gain (Loss), net Net Financial Embraer uses the dollar as the functional currency for Transaction Loss US GAAP, and the variations in this item refer mainly reduced in to the remeasurement of monetary assets and liabilities FY2002, due to denominated in other currencies that are adjusted to the increase of the the dollar at the end of each period. This item is also fair market value influenced by the net result of hedges that are marked of the hedges. to market. Net Financial Transaction Loss in FY2002 was US$86.0 million, 49.5% lower than the US$170.2 million registered in FY2001, despite the higher devaluation of the Real in 2002, due to the increase of the fair market value of the hedges. During 4Q02, net Financial Transaction Loss reached US$ 6.1 million, due to the appreciation of the Real and the decrease during the quarter of the fair market value of hedges, as compared to a net Financial Transaction Gain of US$21.6 million during 4Q01. Provision for Income Taxes Our provision for income taxes decreased from US$218.4 million in FY2001 to US$188.5 million in FY2002 mainly due to lower taxable profits under the Brazilian Corporate Law financial statements. Our effective tax rate in 2002 was 45.6% as compared to 40.3% in 2001, as further compared to a statutory tax rate in each year of 34%. The difference between the statutory rate and the effective rates is due to differences in income before income taxes under U.S. GAAP and the taxable income calculated under the Brazilian Corporate Law. In 4Q02, Embraer recorded a total provision of US$ 53.4 million for income taxes, which represents an effective tax rate according to US GAAP of 40.5%, compared to US$37.6 million during 4Q01, with an effective tax rate of 29.8%. Net Income 7 In FY2002, net income was US$ 222.6 million (equivalent to US$1.3095 per diluted ADS), or 8.8% of net sales, while net income for FY2001 was US$ 328.4 million (equivalent to US$ 2.0130 per diluted ADS), or 11.2% of net sales. Embraer's net income in 4Q02 of US$ 77.4 million (equivalent to US$ 0.4463 per diluted ADS) was lower than the net income of US$89.5 million in 4Q01 (equivalent to US$ 0.5397 per diluted ADS). Net income as a percentage of net sales in 4Q02 was 9.7%, compared with the 14.5% in 4Q01. Basic and diluted earning per ADS for the 4Q01 and FY01 have been restated to reflect the 14.21% stock dividend in preferred shares that occurred in March 2002. Financial Management As of December 31, 2002 Embraer`s cash and cash equivalents were US$ 656.8 million. On the same date indebtedness totaled US$ 552.6 million. Therefore the Company had a net cash position (cash and cash equivalents minus bank debt) of US$ 104.2 million.
Balance Sheet and Nine Months Ended Year Ended December Year Ended December Other Data September 30, 2002 31, 2001 31, 2002 ----------------------------------------------------------------------------------------------- In US$ million ----------------------------------------------------------------------------------------------- Cash and cash equivalents 760.1 749.3 656.8 Accounts receivable 245.3 632.8 610.6 Collateralized accounts receivable 311.0 322.3 288.9 Inventories 962.6 1,037.8 880.3 Total assets 3,367.5 3,560.8 3,632.5 Bank debt 542.9 771.7 552.6 Non recourse debt 311.0 322.3 288.9 Total liabilities 2,316.5 2,540.4 2,542.3 Net cash (debt) 217.2 (22.4) 104.2 Shareholders' equity 1,051.0 1,020.4 1,090.2
Indebtedness Long-term During the last year the company extended its indebtedness indebtedness profile and as a result, on December 31, reached 55.8% on 2002, 55.8% of Embraer`s total indebtedness is Dec. 31, 2002. long-term financing, compared with 31.7% on December 31,2001. Embraer also decided to partially convert its Japanese yen and US dollar denominated debt to R$-related interbank interest rates (CDI). Therefore, out of the total US dollar and other currency indebtedness of US$ 528.5 million, 51.5%, or US$ 272.4 million is indexed in R$. When considering the effect of these hedges, out of the total company indebtedness of US$ 552.6 million, 42.1% or US$ 232.5 million primarily refers to US$ borrowing with a weighted average cost of 5.2% per annum. The remaining US$ 320.1 million, equivalent to 57.9% of the total debt, is financed in Brazilian currency at a weighted average interest rate of 17.2% per annum, equivalent to 83.1% of the CDI. Cash Of the total cash and cash equivalents balance of US$656.8 million, 57.3% is comprised of investments in R$ and the remaining 42.7% primarily in US dollars. The Embraer cash investment strategy is based on prospects of future investments, which are mostly denominated in R$. Accounts Receivable and Inventories Since September 2001, Embraer has supported the delivery of aircraft to certain customers that were concluding their financing agreements. This support has caused 8 its accounts receivables in the recent quarters to be more volatile, compared to its historical trends. On December 31, 2002, there was a balance of US$ 610.6 million in short-term accounts receivable in comparison to US$ 200.6 million, as of September 30, 2002, and US$ 596.8 million as of December 31, 2001, related to aircraft delivered whose financing arrangements are in the process of being finalized. As of December 31, 2002 approximately 64% of the short-term accounts receivable are related to financing already approved by the BNDES which the disbursement is expected for the first half of 2003 and the remaining 26% its financing structure is being negotiated and finalized. Short-term inventories decreased US$ 81.5 million between December 31, 2002 and September 30, 2002. This decrease was related to ERJ145 family inventory reductions, partially offset by the inventories for the EMBRAER 170 development, which currently has six prototypes carrying out the flight certification campaign and to the increase in deliveries during the 4Q02. Non-Recourse Debt & Collateralized Accounts Receivable Some of Embraer's sales transactions are structured financings through which an Special Purpose Entity (SPE) purchases aircraft from Embraer, pays Embraer the full purchase price on delivery and then leases the related aircraft to the ultimate customer. The SPE is formed by a third party financial institution to facilitate their financing of an aircraft purchase and the credit risk and the management responsibility associated with the SPE remain with such financial institution. Under U.S. GAAP, sales transactions made through a SPE must be consolidated if the equity contribution of independent third parties is less than 3% of the fair value of the SPE's assets, as discussed in EITF 90-15. Some of the SPEs through which Embraer sells aircraft were formed without any equity contribution and, therefore, must be consolidated. Under Brazilian GAAP, since Embraer does not guarantee these transactions nor finance its customers, these SPEs are not consolidated in the company's financial statements. The effect of consolidating these SPE's resulted in an additional amount of non-recourse debt in December 31, 2002 and September 30, 2002 of US$288.9 million and US$311.0 million, respectively, and an additional amount of collateralized accounts receivable in the same amounts. The impact on the consolidated statements of income and cash flows were not material as the terms of the underlying lease and the debt are substantially the same. The non-recourse debt is collateralized in favor of the financial institution by accounts receivable and by the financed aircraft. Capital Expenditures Productivity and Improvements in Industrial Efficiency & Others In FY2002, US$ 151.8 million was invested in improving the Company's industrial efficiency, including improvements and modernization of industrial and engineering processes, machinery and equipment. This figure also includes US$16.9 million related to three EMB120 which were added to the portfolio of ECC Leasing Co. Ltd. Embraer anticipates spending in property, plant and equipment (PP&E) approximately US$ 58 million in 2003 and an additional US$ 44 million in 2004. Supplementary Information according to Corporate Law (Brazilian GAAP) Today Embraer also reported the FY2002 and 4Q02 earnings results in accordance with corporate law method of accounting (Brazilian GAAP), which according to Brazilian legislation must be used as a basis for calculating the distribution of dividends and interest on shareholders' equity, income tax and social contribution. 9 We present below selected consolidated results in accordance with corporate law and in Reais (R$). Net revenues in FY2002 totaled R$ 7,748.1 million and gross profit returned was R$ 3,454.4 million, with a gross margin of 44.6%. The operating profit for the period (including employee profit-sharing) totaled R$ 2,167.4 million, with an operating margin of 28.0%. The EBITDA for the period was R$ 2,358.7 million and the EBITDA margin 30.4%. Pre-tax income was R$ 1,616.2 million (20.9% of net revenues). Income tax and social contribution totaled R$ 430.3 million, representing an effective tax rate of 26.6%. Net income for the period totaled R$ 1,179.2 million (15.2% of net revenues). New Orders and Backlog Commercial Aviation Market The aviation market as a whole is an industry in a transition phase, undergoing a sharp change in direction, both in terms of routes and fleet management. Embraer estimates that by 2010, the average number of seats for aircraft will be 56 in the US and 75 in Europe. The strong demand for aircraft in the 70 to 150-seater range, combined with the company's advanced perception of this market trend, has led Embraer to develop a range of new jets, consisting of four commercial jets with the capacity to transport between 70 and 108 passengers. It is in this segment that Embraer envisages opportunities, particularly in the US, where there are some two hundred and fifty 100-seater aircraft aged between 21 and 35 years, 64% of which are between 31 and 35 years old, demonstrating the significant potential for their replacement with faster and more modern aircraft such as the EMBRAER 190 and 195. With the two jet families, the ERJ 145 and EMBRAER 170/190, Embraer offers its customers and end-users excellent products, ideally suited to the new scenario in the world of aviation. Embraer estimates in the aviation market a global demand for 30 to 120-seater jets at 8,610 units from 2003 to 2022, total orders amounting to some US$ 180 billion, as shown below. Global Deliveries by Segment Seats 2003-2012 2013-2022 2003-2022 ---------------------------------------------------- 30-60 1,745 1,765 3,510 61-90 1,175 1,415 2,590 91-120 1,090 1,420 2,510 Total 4,010 4,600 8,610 Embraer estimates that the demand for these aircraft types would be as follows: 56% In North and Central America, 21% in Europe, 7% in Latin America, 7% in China, 6% in Asia and the Pacific region and 3% in the Middle East. Embraer's market share, based on the sales accumulated, in the 30 to 60-seater segment is 45% and in the 61 to 90-seater segment, still in a growth phase, 26%. o Commercial Aviation Products The family of regional jets for the transport of 37, 44 and 50 passengers consists of the ERJ 135/140/145 models. In the six years since the delivery of the first ERJ 145 jets, a new milestone was recorded in the history of Embraer with the delivery, in May 2002, of the 600th regional jet to the airline SWISS, receiving its 25th ERJ 145. 10 The ERJ 145 XR - a 50-passenger jet with an extra long range, 29% more than the previous version, complements the ERJ 145 jet family. The modifications, principally to the winglets (wing points) guarantee a range of up to 2000 nautical miles (3,600 km) and a maximum cruise speed of Mach 0.8 (460 knots or 852 km/h). The ERJ 145 XR in September was certified by the Technical Centre for Aerospace (CTA) and by the Federal Aviation Administration (FAA) in October. The EMBRAER 170 is the most complex and sophisticated programme yet developed by the company and represents wider spread of risk through the use of partnerships, leading-edge technology employed in the product, which includes fly-by-wire navigation systems, innovative development and production methods, tooling and project management employed. The EMBRAER 170 is the first model of a new jet family currently under development which include the EMBRAER 175, for 78 passengers, the EMBRAER 190, for 98 passengers, and the EMBRAER 195, with a seating capacity for 108 passengers. During 2002, six EMBRAER 170 aircraft were produced, which are being used in the flight-testing and certification programs, and sales demonstrations. o Order Book-Commercial Aviation Embraer's backlog for the commercial aviation segment at Dec.31, 2002 with US$ 18.5 billion worth of orders on the books (US$ 7.1 billion in firm orders and US$ 11.4 billion in options). This demand corresponds to the delivery of 934 aircraft, 374 firm orders and 560 options, and does not consider the effect of SWISS contract changes announced March 25, 2003. (See recent See "Recent developments). Developments" for information on the In December 2002, the Commercial Aviation segment SWISS contract showed the following order picture in the company's changes. portfolio:
Family Total Deliveries Firm Options Orders Orders ----------------------------------------------------------------------------- Commercial Aviation 1,557 623 374 560 ERJ 145 1,231 623 256 352 EMBRAER 170/190 326 - 118 208
Corporate Aviation Market We estimate that our share of the super mid-size and large corporate jet market, expected to account for the sales of 259 jets a year for the next ten years, is 10%, in other words, some 26 jets a year, 259 units in total over the period analysed. o Corporate Aviation Products The Legacy Executive is a twin-engine jet in the super mid-size class, based on the same platform as the very successful ERJ 135 regional jet. The main modifications to the ERJ 135 platform were: the inclusion of winglets, reinforcement of the fuselage structure, additional fuel tanks in the lower fuselage and baggage compartment, and more powerful engines. Legacy has the largest cabin in its class, a cruising speed of Mach 0.8, a range of up to 3,100 nautical miles (5,741 km) without refuelling stops, transporting 8 to 13 passengers. The Legacy Executive was certified by the Technical Centre for Aerospace (CTA), the Brazilian authority for airworthiness certification, in December 2001. Subsequently, in July 2002 it received certification from the Joint Aviation Authorities (JAA), the European body for airworthiness certification and in September of the 11 same year received Type Certification from the US Federal Aviation Administration (FAA), the US aviation authority. o Corporate Aviation Order Book At the end of 2002, backlog for the Corporate Aviation division amounted to US$ 2.4 billion. This amount corresponds to 150 aircraft - 58 are firm orders and 92 are options.
Total Deliveries Firm Options Orders Orders ----------------------------------------------------------------------------- Corporate Aviation 165 15 58 92 Legacy Executive 77 7 34 36 Legacy Shuttle 75 1 24 50 EMB 135 13 7 - 6
o Aircraft Ordered in the Period In July 2002, Embraer announced an order for the Indian company Jet Airways, for US$ 260 million, for which the contract is being finalized. The signified the first important sale to the Asian jet market of the new EMBRAER 170/190 jet family. During the year there were a number of new sales campaigns which added another 40 firm orders to the order book, 30 firm orders for the ERJ 145 jet family and six firm orders for the EMBRAER 170. In the Corporate Aviation segment, Embraer announced four new firm orders in 2002.
Firm Orders 3rd Quarter 4th Quarter Fiscal Year 2001 2002 2001 2002 2001 2002 ----------------------------------------------------------------------------- Commercial ERJ 135/140 22 - 8 - 38 15 ERJ 145 1 6 - 2 3 15 EMBRAER 170 2 - - 6 2 6 Corporate & Defence Legacy/Shuttle/EMB 135 13 2 25 1 43 4 Total 38 8 33 9 86 40
Defence Market In this segment, the Company's strategy is to offer its clients an integrated vision of the market with products for different missions: intelligence, surveillance and recognition, with the EMB 145 AEW&C, MP/ASW and RS; combat aircraft, with the AL-X - Super Tucano, AMX and F5BR; aircraft used for authority transportation, such as the EMB 135/145, Legacy and EMB 120 - Brasilia and, as well, training products such as the AL-X - Super Tucano, AMX-T, among other training systems. Five aircraft were delivered to the Brazilian Air Force as part of the SIVAM program 12 In the year, Embraer delivered five aircraft to the Brazilian Air Force (FAB) as part of the SIVAM program. These were four EMB 145 AEW&C SA aircraft and one EMB 145 RS. To complete the contract, one EMB 145 SA and two EMB 145 RS still remain to be delivered. The EMB 145 SA aircraft, will perform aerial surveillance and the EMB 145 RS will monitor the soil and rivers of Amazonia, providing cartographic data for the research and analysis of biomass. Its sophisticated radar system allows full and complete monitoring, even below the vast and dense forest vegetation. The order book for the Defence segment at the end of the year amounted to firm orders of US$ 1.0 billion. And taking options into account, totalled US$ 1.3 billion. Backlog The Embraer firm order backlog at the end of the 4Q02 was US$ 9.0 billion, which together with options, reached US$ 22.2 billion, not considering the effect to the changes in the SWISS contract announced on March 25, 2003 (See recent developments). The following chart shows the order backlog at the end of each year.
Backlog US$ billion 4Q01 1Q02 2Q02 3Q02 4Q02 ------------------------------------------------------------------ Firm order backlog 10.7 10.3 10.1 9.6 9.0 Options 12.7 12.8 13.7 13.0 13.2 Total 23.4 23.1 23.8 22.6 22.2
Investor Relations In 4Q02 the price of preferred shares of Embraer increased 7.7% to a share price of R$14.0 on the Sao Paulo stock exchange (Bovespa) as of December 31, 2002. In this period, the average daily turnover on the Bovespa was R$ 9.4 million. The common shares appreciated 8.9% in the quarter, ending the period at R$ 12.80 per share with an average daily turnover of R$ 1.8 million. In the same period the Bovespa Index appreciated by 30.7%. The ADSs, traded on the New York Stock Exchange (NYSE), appreciated by 19.6% - ending the quarter at US$15.90. Each ADS represents 4 preferred shares. The average daily trading volume in the period was 284,000 ADSs, with an average daily turnover of US$ 4.2 million. In the same period, the Dow Jones index appreciated by 9.9%. The shares of Embraer, common (EMBR3) and preferred (EMBR4), at the end of the quarter represented 0.774% and 2.662%, of the Bovespa Index respectively. In the fourth quarter, the Board of Directors approved the distribution of Interest on Shareholders' Equity (IOE) of R$ 142.4 million.
Dividends and IOE in Date Total Amount per share 2002 in R$ ----------------------------------------------------------------------------------------------- Approval R$ '000 ON PN IOE - 1st. Quarter 03/19/02 58,910 0.07777 0.08554 IOE - 2nd. Quarter 06/14/02 59,530 0.07859 0.08644 IOE - 3rd. Quarter 09/13/02 66,300 0.08740 0.09613 13 IOE - 4th. Quarter 12/13/02 142,424 0.18750 0.20620 TOTAL - 327,164 0.43126 0.47431
The total amount of R$ 72.5 million of Interest on Shareholders' Equity approved in 4Q02 includes the payment of years 1998 and 1999. Recent Events During 2003, Embraer adjusted its delivery guidance in two occasions, the first to reflect the Express Jet Reprogramming and the second to give effect to the SWISS renegotiation. Embraer's aircraft delivery guidance decreased from its original 145 and 155 in 2003 and 2004 respectively to 132 and 136 for the same period. LOT deal Embraer announced on January 10 that the Supervisory Board of LOT Polish Airlines confirmed its decision to acquire 06 EMBRAER 170 with options for additional 11 aircraft, that can be converted into the EMBRAER 190 and 195 models. Deliveries are expected to begin in early 2004. Final contract negotiations are expected to take place in the near future. As released, this order involves the negotiation of trade-in, as of 2006, of three ERJ 145 currently operated by LOT and, in case the options are exercised, there will be trade-in of up to three other ERJ 145, depending on the number of options exercised. ExpressJet Reprogramming Embraer, on February 12, 2003, announced that ExpressJet Airlines (NYSE: XJT), due to the economic uncertainties and the adverse market conditions faced by airlines, requested a revision of the deliveries of Embraer regional jets originally scheduled to take place during the years 2003-2005. As a result, a revision in the original delivery schedule was agreed upon, subject to the execution of satisfactory definitive agreements and the approval of the Board of Directors of Continental. The reprogramming of deliveries to ExpressJet of ERJ 145 XR aircraft redistributes the same number of aircraft originally agreed upon, thus establishing a new schedule for the years 2003, 2004, 2005 and 2006. According to the new schedule, Embraer will deliver to ExpressJet 36 aircraft instead of 48 in 2003 and 21 aircraft instead of 36 in 2004. In 2005, the revision will increase the amount of deliveries to 21 instead of two, with the remaining eight units to be delivered in 2006. The schedule change would become effective in the third quarter of this year. At that time, Embraer revised its delivery forecast for the years 2003 and 2004 to 136 and 140 aircraft respectively. Swiss Renegotiation Embraer announced on March 25, that an agreement has been reached with Swiss International Air Lines, regarding its ongoing short-haul fleet renewal program. In light of the generally unfavorable economic situation, and the carrier's current condition in particular, SWISS is reducing its firm orders for EMBRAER 170 and EMBRAER 195 aircraft to 30 aircraft, 15 of each model, from an original total of 60. The EMBRAER 170 shall enter service at SWISS in August 2004, with four aircraft delivered, followed by eight aircraft in 2005. Deliveries of the EMBRAER 195 will start in 2006. The number of options for both models is also being reduced to 20, from 100 aircraft. As a result of the new agreement with SWISS, Embraer's firm backlog as of December 31, 2002 would be US $ 8.3 billion, while its total backlog, including options, New delivery schedule would amount US$ 19.5 billion. of 132 and 136 aircraft in 2003 and 2004. 14 The EMBRAER 170/190 development program is otherwise proceeding as planned, with the EMBRAER 170 expected to be certified in the second quarter of 2003, in order to allow deliveries to Alitalia and GECAS. In light of this agreement with SWISS, Embraer now forecasts deliveries for the years 2003 and 2004 at 132 and 136 aircraft, respectively. 15 For additional information please contact: Embraer - Empresa Brasileira de Aeronautica S/A Anna Cecilia Bettencourt (55 12) 3927 1216 acecilia@embraer.com.br Gustavo Poppe (55 12) 3927 1106 gustavo.poppe@embraer.com.br Milene Petrelluzzi (12) 3927 3054 milene.petrelluzzi@embraer.com.br ------------------------------------------------------- This document includes forward-looking statements or statements about events or circumstances which have not occurred. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business and our future financial performance. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things: general economic, political and business conditions, both in Brazil and in our market; expectations of trends in the industry; our investment plans; our capacity to develop and deliver products on the previously agreed dates; and existing and future government regulations. The statements included in this release regarding our competitive position and market share in, and the market size of, the commercial, regional and defense aircraft markets and the growth in the regional and corporate jet markets, are based upon a combination of independent industry publications,reports of government agencies and other published industry sources, as well as our own estimates. Our internal estimates are based on our management's knowledge and experience in the markets in which we operate. Our estimates have been based on information obtained from our customers,suppliers, trade and business organizations and other contacts in the markets in which we operate. However, this information may prove to be inaccurate because of the method by which we obtained some of the data for our estimates or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in data gathering. As a result, you should be aware that market, ranking and other similar data included in this release, and estimates and beliefs based on that data, may not be reliable and we can not guarantee the accuracy or completeness of such information. The words "believes," "may," "will," "estimates," "continues," "anticipates," "intends," "expects" and similar words are intended to identify forward-looking statements. We undertake no obligations to update publicly or revise any forward-looking statements because of new information, future events or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this press release might not occur. Our actual results could differ substantially from those anticipated in our forward-looking statements. ------------------------------------------------------- 16 EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. CONSOLIDATED STATEMENTS OF INCOME In thousands of U.S. dollars except per share data
For the three months ended For the years ended December 31, December 31, -------------------------- ---------------------------- 2001 2002 2001 2002 Unaudited Audited Unaudited GROSS SALES: Domestic market 16,066 13,469 62,702 58,342 Foreign market 605,745 791,369 2,902,936 2,493,313 Sales deductions (4,610) (6,651) (38,643) (25,855) --------- --------- ---------- ----------- NET SALES 617,201 798,187 2,926,995 2,525,800 --------- --------- ---------- ----------- Cost of sales and services (375,783) (485,897) (1,769,234) (1,531,720) --------- --------- ---------- ----------- Gross Profit 241,418 312,290 1,157,761 994,080 --------- --------- ---------- ----------- Operating expenses Selling expenses (45,543) (77,009) (212,057) (211,013) Research and development (20,050) (45,772) (99,566) (158,617) General and administrative (34,178) (21,530) (120,787) (109,673) Employee profit sharing (20,858) (10,197) (43,746) (25,222) Stock compensation - - (1,074) - Other operating expense, net (7,552) (15,460) (29,463) (20,381) Equity in income (loss) from affiliates 132 108 310 388 --------- --------- ---------- ----------- Income From Operations 113,369 142,430 651,378 469,562 --------- --------- ---------- ----------- Interest income, net (4,360) (4,031) 69,043 30,797 Financial transaction loss, net 21,640 (6,052) (170,178) (85,988) Other non-operating income (expense), net (4,431) (521) (8,426) (1,394) --------- --------- ---------- ----------- Income Before Income Taxes 126,218 131,826 541,817 412,977 --------- --------- ---------- ----------- Provision for income taxes (37,601) (53,384) (218,394) (188,502) --------- --------- ---------- ----------- Income Before Minority Interest 88,617 78,442 323,423 224,475 --------- --------- ---------- ----------- Minority interest 884 (1,033) (423) (1,883) --------- --------- ---------- ----------- Income Before Cumulative Effect 89,501 77,409 323,000 222,592 Of Accounting Change ========= ========= ========== =========== CUMULATIVE EFFECT OF ACCOUNTING CHANGE, - - 5,440 - NET OF TAX --------- --------- ---------- ----------- Net Income 89,501 77,409 328,440 222,592 ========= ========= ========== =========== EARNINGS PER SHARE (1) Basic Common 0.12 0.10 0.48 0.30 Preferred 0.13 0.11 0.53 0.33 Diluted Common 0.12 0.10 0.46 0.30 Preferred 0.13 0.11 0.50 0.33 WEIGHTED AVERAGE SHARES (thousands of shares) (1) Basic Common 242,544 242,544 242,544 242,544 Preferred 442,588 469,527 402,035 454,414 Diluted Common 242,544 242,544 242,544 242,544 Preferred 447,480 473,254 433,386 459,420 Earning Per Share - ADS Basic (US$) 0.5399 0.4487 2.1104 1.3192 Earnings Per Share - ADS DILUTED (US$) 0.5397 0.4463 2.0130 1.3095
(1) Restated to give effect to the stock dividend of 14.21% in preferred shares that occurred in March 2002 17 EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. CONSOLIDATED BALANCE SHEETS In thousands of U.S. dollars ASSETS
As of September 30 As of December 31 ------------------------------- ------------------------------------ 2001 2002 2001 2002 ----------- ------------ ------------- --------------- Unaudited Audited Unaudited CURRENT ASSETS Cash and cash equivalents 883,809 760,076 749,302 656,822 Trade accounts receivable 660,037 200,562 596,801 610,583 Inventories 938,180 946,325 1,015,081 864,800 Deferred income tax assets 86,471 80,280 98,756 90,014 Collateralized accounts receivable 11,441 21,853 16,315 20,233 Other current assets 69,731 191,586 89,093 222,032 ----------- ------------ ------------- --------------- Total Current Assets 2,649,669 2,200,682 2,565,348 2,464,484 ----------- ------------ ------------- --------------- NONCURRENT ASSETS: Marketable security - - - 23,263 Trade accounts receivable 56,720 44,772 36,021 - Collateralized accounts receivable 302,368 289,119 306,033 268,683 Inventories 18,993 16,289 22,714 15,518 Property, plant and equipment, net 338,265 436,790 366,481 453,167 Investments 4,224 4,642 4,362 4,745 Deferred income taxes 81,723 62,105 85,139 72,827 Other noncurrent assets 72,282 313,112 174,689 329,775 ----------- ------------ ------------- --------------- Total noncurrent assets 874,575 1,166,829 995,439 1,167,978 ----------- ------------ ------------- --------------- TOTAL ASSETS 3,524,244 3,367,511 3,560,787 3,632,462 =========== ============ ============= ===============
18 EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. CONSOLIDATED BALANCE SHEETS In thousands of U.S. dollars LIABILITIES AND SHAREHOLDERS' EQUITY
As of September 30 As of December 31 ----------------------- ------------------------- 2001 2002 2001 2002 ----------------------- ------------------------- Unaudited Audited Unaudited CURRENT LIABILITIES Loans 616,125 246,779 526,550 244,526 Accounts payable to suppliers 454,975 306,588 265,593 323,115 Customer advances 373,262 342,235 385,265 409,258 Contingency 80,196 134,805 117,374 188,900 Other accounts payable and accrued liabilities 323,355 332,174 393,081 427,495 --------- --------- --------- --------- Total Current Liabilities 1,847,913 1,362,581 1,687,863 1,593,294 --------- --------- --------- --------- LONG-TERM LIABILITIES Loans 139,160 296,129 245,186 308,111 Customer advances 78,187 100,205 106,594 95,625 Contribution from suppliers 156,179 233,965 143,615 235,445 Other accounts payable and accrued liabilities 343,050 316,004 337,872 289,267 Contingency 11,131 12,314 --------- --------- --------- --------- Total long-term liabilities 716,576 946,303 844,398 940,762 --------- --------- --------- --------- MINORITY INTEREST 7,452 7,647 8,170 8,226 --------- --------- --------- --------- SHAREHOLDERS' EQUITY: 952,303 1,050,980 1,020,356 1,090,180 --------- --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,524,244 3,367,511 3,560,787 3,632,462 ========= ========= ========= =========
19 EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands of U.S. Dollars
For the three months ended For the years ended December 31, December 31, -------------------------- ---------------------------- 2001 2002 2001 2002 Unaudited Audited Unaudited Operating Activities Net Income 89,501 77,409 328,440 222,592 Adjustments to reconcile net income to net cash provided by(used in) operating activities: Depreciation and amortization 14,619 14,926 46,417 55,602 Provision for doubtful accounts 3,787 (599) 6,938 509 Provision for inventory obsolescence (1,276) 14,980 12,968 20,974 Deffered income and social contribution tax (15,701) (20,457) 41,333 21,054 Cumulative translations adjustments - - (5,440) - Loss on the disposition of assets 1,141 (2,566) 966 1,119 Stock compensation - - 1,074 - Equity in (income) loss from affiliates (132) (108) (310) (388) Accrued interest recorded in loans (19,464) (16,111) 3,731 22,712 Minority interests (884) 1,034 423 1,883 Other (15,062) 2,832 (9,351) (5,839) Changes in assets and liabilities Marketable securities - (23,263) - (23,263) Trade accounts receivable 80,148 (364,650) (456,953) 21,730 Inventories (79,346) 73,526 (434,571) 142,713 Other assets (52,405) (12,217) (59,792) (184,821) Accounts payable to suppliers (189,382) 16,527 (1,299) 57,522 Other accounts payable and accrued liabilities 52,209 15,893 31,803 (14,162) Accrued taxes on income 16,626 42,708 8,469 19,624 Customers advances 40,410 62,445 117,521 13,025 Contribution from suppliers (12,564) 1,480 1,945 91,830 Taxes and social charges payable 1,774 9,390 (3,399) 9,348 Contingency 46,565 47,625 57,441 53,924 Minority Participation 1,603 1,372 - - ------------ ----------- --------- ---------- Net cash provided by (used in) operating activities (37,833) (57,824) (311,646) 527,688 Investing Activities Purchase of property, plant and equipment (28,384) (36,752) (143,828) (151,827) Proceeds from the sale of property, plant and equipment (521) 385 - 790 Customer and commercial financing - net additions (18,588) (13,684) (13,735) (33,251) Guaranteed deposits and compulsory loans (66,336) 849 (98,677) (36,521) ------------ ----------- --------- ---------- Net cash used in investing activities (113,829) (49,202) (256,240) (220,809) Financing Activities Repayment of loans (270,755) (339,667) (1,180,601) (1,103,848) Proceeds from borrowings 307,140 367,433 1,495,119 868,046 Proceeds from the issuance of shares 438 694 1,761 1,208 Dividends paid (18,556) (12,985) (179,491) (134,421) Payments of refinanced taxes (142) (8,670) (1,618) (20,552) Payments on capital lease obligations (969) (3,034) (7,213) (9,792) ------------ ----------- --------- ---------- Net cash provided (used) by financing activities 17,156 3,771 127,957 (399,359) ------------ ----------- --------- ---------- Net increase (decrease) in cash and equivalents (134,506) (103,254) (439,929) (92,480) Cash and cash equivalents at beginning of year 883,808 760,076 1,189,231 749,302 ------------ ----------- --------- ---------- Cash and cash equivalents at end of year 749,302 656,822 749,302 656,822 ============ =========== ========= ==========
20 EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. BACKLOG AS OF DECEMBER 31, 2002
- - ERJ 145: - --------------------------------------------------------------------------------------------------------------- Client Country Firm Orders Options Deliveries Firm Order Backlog - --------------------------------------------------------------------------------------------------------------- Air Caraibes Guadaloupe 2 0 2 0 Air Moldova Moldova 0 2 0 0 Alitalia Italy 14 7 11 3 American Eagle USA 56 17 56 0 Axon Airlines Greece 3 0 3 0 British Midland United Kingdom 11 5 9 2 British Regional United Kingdom 23 3 23 0 Brymon United Kingdom 7 14 7 0 Cirrus Germany 1 0 1 0 Continental Express USA 245 100 159 86 ERA Spain 2 0 2 0 GECAS USA 2 0 2 0 KLM Exel Holland 2 2 2 0 LOT Poland 16 0 14 2 Luxair Luxembourg 9 2 9 0 Mesa USA 36 45 32 4 Portugalia Portugal 8 0 8 0 Proteus France 18 7 13 5 Regional Airlines France 17 0 14 3 Rheintalflug Austria 4 4 3 1 Rio-Sul Brazil 16 0 16 0 Sichuan Airlines China 5 0 5 0 Skyways AB Sweden 4 11 4 0 Swiss Switzerland 25 15 25 0 Trans States USA 12 0 12 0 Wexford USA 45 67 42 3 Total 583 301 474 109
- - ERJ 135: - --------------------------------------------------------------------------------------------------------------- Client Country Firm Orders Options Deliveries Firm Order Backlog - --------------------------------------------------------------------------------------------------------------- American Eagle USA 40 0 40 0 British Midland United Kingdom 4 0 2 2 City Air Sweden 2 1 2 0 Continental Express USA 30 0 30 0 Pan Europeenne France 1 0 1 0 Proteus France 6 0 6 0 Regional Airlines France 3 0 3 0 Regional Air Lines Morocco 1 5 0 1 SA Airlink South Africa 20 0 5 15 Wexford USA 15 0 2 13 TOTAL 122 6 91 31
21
- - ERJ 140: - --------------------------------------------------------------------------------------------------------------- Client Country Firm Orders Options Deliveries Firm Order Backlog - --------------------------------------------------------------------------------------------------------------- American Eagle USA 139 25 43 96 Midwest Express USA 20 20 0 20 Wexford USA 15 0 15 0 TOTAL 174 45 58 116
- - EMBRAER 170: - --------------------------------------------------------------------------------------------------------------- Client Country Firm Orders Options Deliveries Firm Order Backlog - --------------------------------------------------------------------------------------------------------------- Air Caraibes Guadaloupe 2 2 0 2 Alitalia Italy 6 6 0 6 GECAS USA 50 78 0 50 Swiss Switzerland 30 50 0 30 Total 88 136 0 88
- - EMBRAER 195: - --------------------------------------------------------------------------------------------------------------- Client Country Firm Orders Options Deliveries Firm Order Backlog - --------------------------------------------------------------------------------------------------------------- GECAS USA 0 22 0 0 Swiss Switzerland 30 50 0 30 Total 30 72 0 30
Legacy Executive: - --------------------------------------------------------------------------------------------------------------- Client Country Firm Orders Options Deliveries Firm Order Backlog - --------------------------------------------------------------------------------------------------------------- SWIFT USA 24 25 2 22 Undisclosed USA 17 11 5 12 TOTAL 41 36 7 34
Legacy Shuttle and EMB 135 - Corporate Market: - --------------------------------------------------------------------------------------------------------------- Client Country Firm Orders Options Deliveries Firm Order Backlog - --------------------------------------------------------------------------------------------------------------- Conoco USA 1 0 1 0 Indigo USA 25 50 1 24 Undisclosed USA 6 6 6 0 TOTAL 32 56 8 24
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